Updating the geographic practice cost index : the malpractice GPCI

162 Pages·1994·4.2 MB·English

by  Zuckerman, Stephen

Health Policy Center
I?
6330-01 (Revised) May 199
UPDATING THE GEOGRAPHIC
PRACTICE COST INDEX:
THE MALPRACTICE GPCI
Stephen Zuckerman
Stephen Norton
-
i

6330-01 (Revised) May 1994
UPDATING THE GEOGRAPHIC
PRACTICE COST INDEX:
THE MALPRACTICE GPCI
Stephen Zuckerman
Stephen Norton
The Urban Institute
M
2100 Street, N.W.
Washington, DC 20037
This report was prepared under a subcontract to The Urban Institute through contract No. 500-89-
0050.5 from the Health Care Financing Administration to Health Economics Research, Inc. The
opinions expressed are those of the authors and do not represent those of the Health Care
Financing Administration, the Urban Institute, or Health Economic Research, Inc.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
iv
INTRODUCTION
I. 1
NEW DATA COLLECTION
H. 5
Sample of Insurance Companies 6
PCF Costs 11
JUA Costs 13
Other Adjustments and Caveats 15
ALTERNATIVE UPDATES OF THE MGPCI
III. 16
MGPCI
Specific Alternatives 18
Computation Method 20
IV. IMPACT OF MGPCI ALTERNATIVES 22
Explaining the Changes 25
V. ASSESSMENT OF MGPCI ALTERNATIVES 30
VI. RVU WEIGHTING AND CURRENT LOCALITIES 32
REFERENCES
35
APPENDIX A: Impact of 3-Specialty 1990-92 MGPCI, by Locality
APPENDIX B: Impact of 20-Specialty 1990-92 MGPCI, by Locality
APPENDIX C: Impact of 3-Specialty 1992 MGPCI, by Locality
APPENDIX D: Impact of 20-Specialty 1992 MGPCI, by Locality
APPENDIX E: Simulated Impact of MGPCI Update on Average Medicare Fees, by Locality
APPENDIX F: Impact on MGPCI of Changing from Population Weighting to RVU Weighting, by
Locality
APPENDIX G: Original MGPCI and 1996 and 1995 Updated MGPCIs, by Locality
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LIST OF TABLES
Table Page
1 Insurance Company, Market Shares by Company and Total Market by State 7
2 National Market Shares of Top 15 Medical Malpractice Insurers 11
3 PCF Adjustments 13
4 MGPCI Weights by Low, Medium, and High Risk for Top 20 Medicare
Specialties (1990) 19
5 Distribution of Changes in MGPCI Values by Update Alternative 23
6 Impact of 3-Specialty 1990-92 Data on MGPCI, by State 26
7 Impact of Expanding Number of Specialties in MGPCI Based on
1990-92 Data, by State 29
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EXECUTIVE SUMMARY
The goal of this study is to develop an updated version of the Malpractice Geographic
Practice Cost Index (MGPCI) used in the Medicare Fee Schedule (MFS) for physician
services. The index measures geographic differences in malpractice costs by comparing
premiums charged for a mature claims-made insurance policy with $1 million/ $3 million
limits of coverage. Adjustments are made to acknowledge states that require mandatory
contributions into a fund set up to cover large settlements. The MGPCI originally used in the
Medicare physician payment system relies on premium data from 1985 and 1986 from a
relatively limited number of insurance companies and is based on premiums for three
specialties that were selected to represent low, middle, and high degrees of malpractice risk.
In order to improve the index, data are required that are both more recent and more
broadly representative of the insurers in each state. As such, the first part of this report
A
discusses the data collection efforts. state-by-state survey allowed us to collect information
for 1990-1992 from 59 insurers, including both for-profit and physician-owned companies.
The market shares of the insurers that provided data totalled at least 65 percent in all states.
In many states, over three-quarters of the market was represented. With this large a share of
the insurance markets represented, policymakers can feel more confident that the most
important premiums in each state are, in fact, determining the MGPCI.
These data are then used to develop alternative updates of the MGPCI. These updates
vary the number of specialties whose premiums are included in the computation (the original
three specialties versus the 20 most important Medicare specialties) and the number of years
of data upon which the index is based (a three-year average versus the single most recent
year). For all options, there would be large changes in most MGPCI values. Even for an
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